Turkey and Russia - Tender Relations Over Nuclear Power

The recent announcement of a stay of execution on three of the clauses of the legislative framework for the building of Turkey’s first ever nuclear power plant has reinforced doubts about the viability of the project and threatens to strain Turkey’s increasingly close economic relationship with Russia.

The court decision is the latest in a series of setbacks for Turkey’s nuclear power ambitions. The contract for the building of a nuclear plant in Akkuyu, near Mersin on Turkey’s eastern Mediterranean coast, was first announced on March 13, 2008. The size of the plant was set at 4,000 MW, plus or minus 25 percent. It was the fourth time that Turkey had sought to build a nuclear power plant. The previous attempt had collapsed in 2000 in the face of public opposition and the likely high price of the electricity that the plant would produce.

In 2008, 13 consortia bought tender documents. But a lack of clarity about some of the terms of the contract – particularly the Turkish state’s commitment to buy electricity for the first 15 years of the plant’s operating life – meant that only one of the potential bidders submitted an offer by the deadline of September 24, 2008. As a result, the contract was awarded to the sole bidder, a consortium headed by the state-owned Atomstroyexport of Russia and the privately-owned Turkish Ciner Group.

Turkey has very limited indigenous energy resources and needs to import almost all of its oil and natural gas. According to figures from the Turkish Energy Ministry, natural gas powered plants currently account for 49.1 percent of Turkey’s annual electricity production of 194.3 kWh. Plants using locally-mined lignite produce another 20.1 percent, followed by hydro power plants with 17.8 percent. Oil, imported coal, wind and geothermal energy account for the remaining 13 percent.

The main objective of Turkey’s nuclear power program is to diversify not only the means of electricity production but also its energy supplies, particularly its dependence on Russia. At the moment, Russia provides Turkey with around one third of its oil and nearly two thirds of its natural gas. As a result, the award of the contract for the nuclear power plant at Akkuyu to a Russian-led consortium defeated the main goal of the original tender.

However, it also left Turkey with a dilemma. Despite their historical animosity, Russia is now Turkey’s leading trading partner and Ankara’s increasingly strained relations with the EU and the US have led to a strengthening of bilateral political ties with Moscow. As early as October 2008, advisors to the then Turkish Energy Minister Hilmi Guler privately admitted that they were anxious to find a pretext to cancel the nuclear power plant tender but did not know how to do so without alienating Moscow; which they feared could not only complicate supplies of Russian oil and natural gas but also jeopardize future political cooperation.

At first sight, the recent court decision appears to have offered Turkey a way out. On November 11, the Council of State, Turkey’s highest administrative court, passed a stay of execution on the allocation of state land for the construction of the plant in Akkuyu and cancelled the clauses in the relevant law pertaining to the setting of the price of the unit sales of the electricity. The Council of State also upheld a previous ruling by a lower court which had annulled some of the conditions set for candidates bidding for the tender. The rulings were in response to a case filed by the Union of Chambers of Turkish Engineers and Architects (TMMOB), which is opposed not only to the plant at Akkuyu but to nuclear power in general.

However, Energy Minister Taner Yildiz, who succeeded Guler in May 2009, dismissed suggestions that the agreement with Atomstroyexport was automatically null and void, arguing that it was possible for his ministry to enact new clauses to replace those cancelled by the Council of State without having to put the Akkuyu contract back out to tender. This is disputed by most legal experts, who believe that any attempt to replace the cancelled clauses would also be annulled by the courts.

Prior to the legal annulments, the Akkuyu nuclear power had been expected to begin production in 2015. Even if construction of the plant goes ahead, that date is now expected to be pushed back several years. When the contract was first put out for tender in 2008, electricity consumption in Turkey was growing by over 10 percent a year and demand was already threatening to outstrip supply. But the global economic crisis is expected to result in a 6 percent decrease in Turkish GDP in 2009 and electricity demand is forecast to contract by 4 percent in 2010 before returning to growth in 2011.

However, even if the global downturn has bought Turkey some time, demand for electricity is expected to climb steeply once the economy starts to pull out of recession. If Turkey decides to start all over again, a new contract for the Akkuyu plant is not expected to be put out to tender until late 2010 at the earliest. The problem for the Turkish authorities is that there is likely to be considerably less international interest than there was in early 2008. Not only has the international investment environment changed as a result of the global crisis but the Council of State rulings have reinforced doubts about the vulnerability of foreign investments to challenges in the Turkish courts.

After Atomstroyexport was awarded the contract in September 2008, sources close to the company described it as a strategic rather than a merely commercial move. They said that one of their motivations was to make Turkey more reliant on Russia for its energy needs. The difficulty now for the Turkish authorities is that not only may the cancellation of the Akkuyu contract irritate Russia but that Moscow will become even more determined to outbid any possible rivals. It is even possible that Atomstroyexport may once again be the only bidder.